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What are the best current accounts for students?

Apply for a student bank account

Each year, thousands of students start university needing to open a new bank account. This account is needed because students need somewhere to receive their student loans, to make payments to their university, and to start handling money by themselves. Most teenagers will never have had to handle money previously, and so opening a new account can seem like the symbol of a new start. Finding the right bank account can be hard for even the most economically-savvy student, and there are many accounts to choose between. Banks want to attract as many new account holders as possible, and so the September battle for students sees them offering increasingly ambitious rewards, including free rail cards, and even vouchers for shops and online retaillers such as Amazon. Making the choice between these competitors is not always easy.

What should a student look for?

When searching for a student account, the main focus should always be on the rates and overdrafts which are attached to the account. However, it can still make sense to try to combine good financial incentives with rewards that attract the student.

One of the most popular, and highly praised, of the current accounts for students available at the moment is the HSBC account. There is an interest free over-draft for amounts up to £3,000 once the student year begins, and is free for overdrafts of £500 before the student signs up to university. There are also financial rewards in the form of an interest rate of 2 percent (1.5 percent above the base rate) on all balances up to £1000. Account holders will also get an Amazon gift voucher worth £60, which is good for buying study books, a £70 discount voucher for the Kindle Fire HDX, and a contactless debit card.

Santander 123 student account is also very popular, but students should be aware that the bank has a less than sterling reputation for handling accounts after you stop being a student. If you sign up for this account, you get interest free on overdrafts up to £1500, and students have £250 to begin with right from the opening of the account. Students have to pay in £500 each term in order to get the highest level of overdraft, and if you are taking a PhD, or studying for a degree which requires four or five years’ learning, then you can expect to get an overdraft of £2,000 in the final year. Remember that these overdrafts will have to be paid back after you graduate. In terms of rewards, you will get 1% interest if your balance is between £100 and £200, and you will get up to 3% on accounts up to £2,000. You will also get a four-year Young Persons Railcard, which usually costs around £30.

Disadvantages in having a student current account

If you are looking to get a student current account with rewards, including low interest rates and financial benefits, then you may be interested in the banks’ offers. However, these student accounts do have some downsides, particularly in the years after graduation. Once you have ceased to be a student, your account is likely to be changed to a standard current account, including regular rates of interest on overdrafts, and reduced benefits on savings. This can mean that you start gaining large debts on your account as soon as you leave university, which is not the ideal time to have to repay a mortgage.

In addition, student current accounts are focused on encouraging students to spend money. Low interest rates and large overdrafts are there to ensure that you spend as much as you can. This debt remains with you after you graduate, and can lead you to having a poor credit history before you are even out of your 20s.